The Electric Car Battery War

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Ener1 began in the mid-80s as a telecom-equipment maker. It bought a lithium-ion battery developer in 2002 and formed EnerDel, a venture with Delphi (DPHIQ) that it eventually took over. Like A123, EnerDel also makes batteries for electric utilities. But a key customer, Norwegian electric carmaker Think, has struggled since the credit crunch.

The strongest U.S. player right now is Johnson Controls. Its French partner Saft has a cell plant, while Johnson's big edge is its supply and design relationships with the world's top automakers. But lithium-ion technology is vastly more complex than that of lead-acid batteries. Alex A. Molinaroli, president for power solutions, says Johnson understands better than its rivals how to design battery systems that fit with a vehicle's electronics. Johnson is also likely to apply for federal loans. "We are making aggressive plans to manufacture in the U.S.," Molinaroli says.

Skeptics counsel caution. Menahem Anderman, president of Total Battery Consulting in Oregon House, Calif., doubts there will be a mass market for electric cars within a decade. When gas cost $4 a gallon last summer, he notes, consumers who shelled out the extra $3,000 for a hybrid like the Prius, with nickel-metal hydride batteries, were close to breaking even. But next-generation lithium-ion batteries will add at least $8,000 to the price of a plug-in when all the electronics are included. For drivers to save money on the Volt, Anderman calculates production will have to reach 1million cars a year, and gas will have to pass $5 a gallon. Ener-Del program manager Sean Hendrix counters that electric carmakers are accelerating their plans. "This industry is happening now," he says.

Skeptics also question whether America needs to make lithium-ion cells rather than import them from low-cost Asian suppliers. "If the goal is to get the costs of the technology low enough so we can switch en masse from imported fuels, I don't think you need domestic manufacturing," says William G. Haines, director of a National Science Foundation program that makes small loans to U.S. tech companies. And there's no guarantee U.S. companies getting taxpayer help won't be acquired by bigger Asian rivals. Gassenheimer admits players like Ener1 "ultimately will be consolidated into another company." Lithium-ion car batteries are an exciting technology. Whether they will generate an exciting U.S. industry is anyone's guess.

With Kenji Hall and Ian Rowley in Tokyo, David Welch in Detroit, and Frederik Balfour in Hong Kong

Engardio is an international senior writer for BusinessWeek .